Dodge & Cox Buys KKR Stake at 13.6x Forward Earnings

Dodge & Cox Stock Fund initiated a new position in KKR & Co. Inc. during the second quarter of 2026. The asset manager capitalized on a steep, year-long sell-off in the alternative asset manager's equity.

The move, detailed in the firm's recent investor letter, reflects a deliberate pivot away from the quarter's dominant market trends. U.S. equities reached record highs in Q2, propelled by a concentrated technology and memory semiconductor rally. This momentum bypassed Dodge & Cox, whose Class A shares returned 5.57%, significantly lagging the S&P 500's 15.20% gain and the Russell 1000 Value Index's 13.84% return.

The underperformance stemmed from an underweight position in information technology and weakness in several existing holdings. However, the fund's managers framed the divergence as an opportunity to deploy capital into high-quality businesses whose valuations had detached from their underlying fundamentals. Alongside KKR, the fund also opened a position in Visa.

KKR presents a specific valuation case for institutional investors. As of July 21, the New York-based private equity and real estate investment firm closed at $97.11 per share, reflecting a $90.55 billion market capitalization. While the stock posted a one-month return of 6.12%, it remains down 34.50% over the past 52 weeks. The decline was driven by broader macroeconomic anxieties and specific concerns about potential weakness in KKR's private credit and software investments.

Dodge & Cox explicitly pushed back against the bearish narrative surrounding KKR's vulnerable sectors. "We believe the company's exposures to these areas are manageable and not overly concentrated," the firm stated. The fund highlighted that KKR was trading at just 13.6 times forward earnings, a discount that fails to account for its diversified portfolio across private equity, real assets, and credit, alongside strong management alignment.

The overall strategy underscores a growing friction in current equity markets. As volatile oil prices and rising inflation persist, concerns over artificial intelligence disruption have triggered sharp declines in established companies with solid profitability. By deliberately avoiding the AI-driven momentum trade to buy these lagging franchises, Dodge & Cox is betting that diversification and long-term earnings power will ultimately outperform the current narrow market leadership.